UNIVERSITY OF THE WEST INDIES

FACULTY OF LAW

LAW 1410 CONTRACT LAW I

SEMESTER II (2020)
Worksheet 5

INTENTION TO CREATE LEAGAL RELATIONS

REQUIRED READNG

1. Gilbert and Maria Kodilinye, Commonwealth Caribbean Contract Law,

Routledge (latest edition)
2. Cheshire Fifoot Furmston, Law of Contract, Oxford Publishing (latest edition)
Electronic Location:
http://catdir.loc.gov/catdir/toc/fy13pdf01/2012941006.html
3. J Smith and J Thomas, Casebook on Contract, Sweet and Maxwell (latest
edition)
3. Jill Poole, Casebook on Contract Law, Oxford Publishing (latest edition)
4. Jill Poole, Textbook on Contract Law, Oxford Publishing (latest edition)

CASES

Balfour v Balfour [1919] 2 KB 571

Carlill v Carbolic Smoke Ball Co [1893] QB
Coward v Motor Insurance Bureau [1963] 1 QB
359 Edwards v Skyways [1964] 1 WLR 349
Errington v Errington Woods [1952] 1 KB 290
Esso Petroleum Ltd v Commissioners of Customs and Excise [1976] 1 All ER 117
Hardwick v Johnson (1978) 1 WLR 683
Headley v Clarke Carilaw BB 1965 DC 1
Heilbut Symons & C v Buckleton [1913] AC
30 Heslop v Burns [1974] 1 WLR 1241
Jones v Padavatton [1969] 2 All ER 616
Jones v Vernon Pools [1938] 2 All ER 626
Kleinwort Benson Ltd v Malaysia Mining Corporation (1989) 1 WLR 379
Lens v Devonshire Golf Club (1914) Times, 4 December
Masters v Cameron (1954) 91 CLR 353
Merritt v Merritt [1970] 1 WLR 1211
Parker v Clark [1960] 1 WLR 286
Pettitt v Pettitt [1970] AC 777
Rose & Frank Co v JR Crompton & Bros Ltd [1924] AC 445
Simpkins v Pays [1955] 1 WLR 975
Snelling v John G Snelling Ltd [1973] QB 87
Sousa v Marketing Board [1962] 5 WIR 152
INTRODUCTION

Generally there are two types of agreement which can be distinguished in

respect of intention to create legal relations. First, there are many examples from
the sphere of social, family and domestic interaction which may comprise the
first three elements of a contract, but which lack the requisite element of
intention to create legal relations. In social and domestic situations, the law
presumes that there is no intention to create legal relations. Second, commercial
agreements denote a separate type of agreement with respect to intention to
create legal relations. Where agreements are commercial in nature, the
presumption is that parties intend to create legal relations.

INTENTION TO CREATE LEGAL RELATIONS IN THE SOCIAL AND DOMESTIC

CONTEXT

In order to determine the parties’ intentions were a contract is purportedly

formed in the social and domestic context, the courts presume that parties did
not intend to create legal relations. Generally, social and domestic agreements
between parents, children, spouses, siblings and friends have no legal effect,
even if consideration is present:
- Balfour v Balfour (1919): Lord Atkin stated: “In respect of these promises
each house is a domain into which the King's writ does not seek to run,
and to which his officers do not seek to be admitted.”

- Merritt v Merritt [1970] 1 WLR 1211 (The court in Merritt v Merritt held that
the presumption against married couples not intending to create legal
relations did not apply where the couple was separated or about to separate).

In Pettitt v Pettitt [1970] AC 777, while upholding the ratio of Balfour v Balfour,
the court made a distinction between executed and executory consideration in
respect of the enforceability of promises in relation to investments in real or
personal property (see also Errington v Errington Woods [1952] 1 KB 290). Lord
Atkin held that domestic contracts that

“are executory they do not give rise to any chose in action, for neither party
intended that non-‐performance of their mutual promises should be the subject
of sanctions in any court (see Balfour v. Balfour). But this is relevant to non-‐
performance only. If spouses do perform their mutual promises the fact that
they could not have been compelled to do so while the promises were executory
cannot deprive the acts done by them of all legal consequences upon
proprietary rights; for these are within the field of the law of property rather
than of the law of contract. It would, in my view, be erroneous to extend the
presumption accepted in Balfour v. Balfour that mutual promises between man
and wife in relation to their domestic arrangements are prima facie not
intended by either to be legally enforceable to a presumption of a common
intention of both spouses that no legal consequences should flow from acts
done by them in performance of mutual promises with respect to the
acquisition, improvement or addition to real or personal property – for this
would be to intend what is impossible in law.”
Similarly, in Snelling v John G Snelling Ltd [1973] QB 87, the court held that an
otherwise purely commercial agreement that happened to have been concluded
between three brothers was enforceable.

Parents and children/in-laws/friends: the presumption against intention to

create legal relations remains:
- Jones v Padavatton [1969] 2 All ER 616, (a mother’s promise to pay her adult
daughter an allowance was a moral obligation, not a legal one);
- the presumption may be rebutted where the consequences of the agreement
are serious (Parker v Clark [1960] 1 WLR 286);
- Hardwick v Johnson (1978) 1 WLR 683, (the presumption against intention to
create legal relations between parent and child may be rebutted where a child-‐
in-‐law is involved);
- This rebuttal of the presumption against intention extends to third parties in
general (Simpkins v Pays [1955] 1 WLR 975);
- the rebuttable presumption against intention prevails were the agreement
involves friends, rather than family e.g. Coward v Motor Insurance Bureau
[1963] 1 QB 359 (an arrangement between friends to provide a lift to work in
return for payment of a small sum did not amount to a legally enforceable
contract) (see also Heslop v Burns [1974] 1 WLR 1241);
- Headley v Clarke (Carilaw BB 1965 DC 1)

INTENTION TO CREATE LEGAL RELATIONS WHERE COMMERCIAL

AGREEMENTS ARE CONCERNED

In the case of agreements regulating business relations, the presumption is

reversed, meaning that where agreements relate to sale and purchase of goods,
services and property, or to employment and tenancy, the courts presume that
the parties intend legal consequences to arise from such agreements.

The presumption can be rebutted however, the party that argues that there was
no intention must prove that this was in fact the case. This can be done, for
instance:
- by use of an explicit clause e.g. Rose & Frank Co v JR Crompton & Bros Ltd [1924]
AC 445, where the agreement between the parties contained the following
clause: “This arrangement is not entered into, nor is this memorandum written, as
a formal or legal agreement and shall not be subject to legal jurisdiction in the law
courts.”;
- an ‘honourable pledge’ clause, which means that there is no legally enforceable
agreement e.g. Sousa v Marketing Board [1962] 5 WIR 152, the defendant had
agreed to sell bananas to the plaintiff under a ‘gentleman’s agreement’. The court
held that the agreement was not subject to the courts jurisdiction (see also Jones
v Vernon Pools [1938] 2 All ER 626);
- a ‘subject to contract’ clause. Typically seen in real property transactions,
where parties have agreed on details such as subject matter, price and date but
the agreement remains ‘subject to contract’, rebutting the intention to create
legal relations, at least until formal contracts are exchanged (Masters v Cameron
(1954) 91 CLR 353);
- where the purported offer may merely be a ‘comfort letter’ which does not give
rise to legal relations, even where acceptance and consideration are present
(Kleinwort Benson Ltd v Malaysia Mining Corporation (1989) 1 WLR 379);
- where the offers are ‘mere puffs’ e.g. Esso Petroleum Ltd v Commissioners of
Customs and Excise [1976] 1All ER 117
TUTORIAL QUESTIONS

(1) Name reasons why the courts may have established the requirement that
legally enforceable agreements must evidence an intention to create legal
relations?

(2) How did the judgment in Carlill v Carbolic Smoke Ball Co (1893) help
establish the requirement for intention to create legal relations?

(3) What is the distinction, if any, between the ratios in Balfour v Balfour
(1919) and Merritt v Merritt (1970)?

(4) The case of Errington v Errington Woods (1952) is said to evidence two
exceptions to the presumption if intention in domestic agreements, that is
where the agreement is in writing and where it is based on a unilateral
offer where consideration is executed.

Explain this statement.

(5) “According to the respective judgments, we must make a strong distinction

between the situations evidenced in Jones v Padavatton (1969) and Parker
v Clark (1960).”

Critically discuss.

(6) Explain why the promise of an ‘ex gratia’ payment may be legally binding.

(7) Provide examples and precedents for the types of situations which may
give rise to rebuttal of the presumption of intention to create legal
relations in the commercial and business context.